Greece imposes spending controls to appease lenders

A woman gestures during a rally organised by municipality workers against state sector layoffs demanded by the country's international lenders, outside the city hall in Athens November 19, 2012.

Reuters/John Kolesidis

ATHENS (Reuters) - Greece approved laws on Monday to enforce budget targets and ensure privatization proceeds are used to pay off debt, seeking to appease foreign lenders before a critical meeting of euro zone finance ministers.

Athens said the decrees - in addition to an austerity package passed this month - completed its obligations to lenders before Tuesday's Eurogroup meeting, which it hopes will unlock more aid to stave off bankruptcy.

"We have delivered, fulfilling the final pledges we made," Greek government spokesman Simos Kedikoglou told Reuters.

The government decrees - which go into force immediately and do not require parliamentary approval - stipulate proceeds from privatization go into a special escrow account and impose automatic cuts on public sector units that miss budget targets.

European paymaster Germany, which has long been skeptical of Greece's commitment to reform, had pushed for the measures, according to sources close to the matter.

Greece now appears to be on track to receive long-delayed funding under its latest bailout, and officials familiar with preparations for the Eurogroup meeting said they expected a "political endorsement in principle" on unfreezing loans.

Asked about Greek declarations that the government had completed all the major steps required of them at this stage, a senior euro zone official said: "They have done so, and two small items remain to be done before disbursement."

Greek government officials said Athens had rejected a last-minute demand by inspectors from the European Union and International Monetary Fund seeking immediate dismissal or transfer of public sector workers earmarked under a "labor reserve" scheme.

"We rejected it, we are not discussing this scenario," a government official told Reuters on condition of anonymity, adding the lenders then withdrew the demand.

Greece had been discussing with its lenders to put more than 22,000 civil servants on reduced pay in 2012 and 2013 with a view to their eventual dismissal, but no final figures had been made public.

Even with the 44 billion euros in aid now expected in December, Greece's problems are far from over, with its euro zone and International Monetary Fund lenders squabbling over how to resolve the country's debt crisis.

IMF officials have said some writedown of Greek debt held by euro zone governments is inevitable, but Germany has rejected the idea of taking a loss on bond holdings.

"At least 31.5 billion euros must be immediately disbursed," said Fotis Kouvelis, the leader of the Democratic Left party in the ruling coalition. "Greece must not be dragged into a tug of war between the EU and the IMF over debt sustainability."

DESTROYING SOCIETY

Greek opposition leader Alexis Tsipras attacked the use of decrees saying the country risked becoming a "debt colony".

"At tomorrow's Eurogroup meeting, a voiceless, surrendered government will go cap in hand to await what others will decide for it," Tsipras, head of the radical leftist Syriza party, told a news conference. The party's popularity has been growing.

One of Monday's decrees requires money from selling state assets to be paid within 10 days into the escrow account at the Greek central bank, set up under the country's second bailout deal with the European Union and IMF last March.

It also imposes curbs on public sector borrowing from 2014 and sets up automatic spending cuts or tax hikes if budget targets are missed.

A second decree cuts the pensions of parliamentary workers, who nearly derailed a vote on austerity measures this month by walking out, forcing the government to hastily withdraw an amendment that would have cut their pay.

Powerful unions and shaky political will have impeded Greek efforts to overhaul its bloated public sector.

Municipal employees blocked city services in Athens on Monday, protesting about plans to earmark about 2,000 government workers for possible dismissal by the end of the year.

At the Health Ministry, workers blocked doorways and held banners reading "No to layoffs!".

Protests have surged in recent weeks. Dozens of mayors across the country have refused to send lists of employees who would fall under the scheme and plan to challenge it in court.

"We have the right to resist measures that destroy society," said Iraclis Gotsis, mayor of the Athens suburb of Nea Ionia on state television NET.